Politics: Charitable organization did not violate tax-exempt status, agency decides. Now some fear officials will set up such groups to finance causes.

WASHINGTON — An Internal Revenue Service decision clearing former House Speaker Newt Gingrich (R-Ga.) of using tax-exempt money for political purposes has sparked a heated debate over the long-term implications of the memo.

The House Ethics Committee had accused the combative Republican leader of using a course he taught in American politics to promote GOP political causes--in violation of House ethics--and of drawing money from a tax-exempt foundation to help finance such activities.

However, the IRS, after a three-year investigation, earlier this month exonerated the main charitable organization involved, the Progress and Freedom Foundation, of charges that it violated its tax-exempt status.

Critics fear that the decision could break down the barriers that have prohibited tax-exempt charitable organizations from getting involved in politics, paving the way for politicians to set up such groups to finance their political activities.

"The ruling means that my colleagues and I can set up a charitable organization--the easiest way out there to raise money," Rep. Nancy Pelosi (D-San Francisco) told the Capitol Hill newspaper Roll Call. With the IRS behind you, she said, "you would be a fool not to do it."

Francis R. Hill, a University of Miami law professor, harbors similar apprehensions. Before the Gingrich decision, she said, the IRS would consider the context of an organization's activities in determining whether it had violated the prohibition.

"But now, in the Gingrich matter, they seem to be saying that if the activity itself is educational, they're not going to ask about any other facts or circumstances," Hill said. If so, "it really does seem possible for candidates now to have their own charities."

Some analysts fret that if that happens, the use of charitable foundations to help finance political activities quickly could become a major factor in American politics, much as "soft money"--unlimited contributions to political parties--has in the 1990s.

But Jeffery L. Yablon, the foundation's attorney, said that the IRS memo applies solely to that case and "does not break new ground" or set any precedents that might affect other groups. "It is deliberately very fact-specific," Yablon said.

The IRS decision, which became public Feb. 3, jolted official Washington. Although the agency did not directly exonerate Gingrich, it decimated one of the main accusations against him by ruling that the Progress and Freedom Foundation had not broken any laws.

"For me personally, it's a big vindication," said Jeffrey Eisenach, the foundation's president. "For Newt, it's important if he ever wants to go back into the political world--to have this shadow lifted."

On its face, the IRS finding seems unequivocal. The 74-page document systematically examines the facts in the complex case and determines that the foundation "did not serve the private interests of" Gingrich or the GOP and did not play a role in any campaign.

However, in an unusual caveat, the IRS said that its conclusions were based "upon the facts available to us" and the agency did not have access to transcripts of witnesses' statements before the House Ethics Committee, which the panel refused to provide.

"It is possible that if the Ethics Committee had rendered full cooperation with our examination, the transcripts might have affected our conclusion," the IRS memorandum said.

It still is not clear why the ethics panel did not provide the IRS with the transcripts.

There also have been debates over whether IRS supervisors really examined the evidence fully or simply took a bow in hopes of heading off a clash with a powerful figure.

The agency has refused to comment on any decisions affecting a specific taxpayer. But Eisenach said that the brouhaha over the IRS' inability to obtain full transcripts from the Ethics Committee--and other fears by critics--are overblown.

Eisenach argued that, although the panel declined to turn over the transcripts, the materials it did give the IRS were laden with quotations from them, and had there been anything detrimental in them, the panel's counsel would have cited it.

Jan Baran, who represented Gingrich before the House Ethics Committee from 1994 through 1996, agreed. "I don't think it opens up anything. I think it just proves that intellectual courses can be taught on American campuses, even by controversial figures."

For all the heated debate, many tax experts believe that it won't be clear for months just what implications the IRS finding may have beyond the Gingrich case. And in the end, it may prove far different from what doomsayers are predicting.

For one thing, the finding the IRS issued on the Gingrich case is simply a "technical advice memorandum"--IRS parlance for a very preliminary advisory that does not necessarily set any precedents.